Northwestern Mutual Invests $75m In Nn Development

NEWPORT NEWS — The large real estate investor is now a partner in City Center at Oyster Point.

Milwaukee-based Northwestern Mutual has invested $75 million in the first two development phases of City Center at Oyster Point in Newport News and is now a co-partner in the development.

Northwestern Mutual, one of the largest real estate investors in the nation, has partnered with HL Development, the developer of City Center at Oyster Point.

The $75 million investment includes $37 million for a partial interest in the first phase of the project, which is already built and includes Fountain Plaza I and II, Merchants Walk and the Red Star Tavern, scheduled to open in June.

Another $37 million is invested in Phase II, which includes 105,000 square feet of retail and 100,000 square feet of office space -- all of which is now under construction.

"This investor allows us to build a $350 million project and keep it on track," said Harvey Lindsay Jr., one of five managing members in the development. "We were able to finance Phase I on our own, but in order to finance Phase II, III and IV, we realized we needed some financial equity."

The 52-acre City Center sits within the 700-acre Oyster Point business park in Newport News, one of two projects that has clearly shifted the city's economic focus toward the middle of the Peninsula. The development has been in the works for the past six years, but construction of City Center has only been active for the past four years.

Upon completion, the project will encompass 1 million square feet of Class A office space, 225,000 square feet of street-level retail space, 800 residential units and a 256-room Marriott Hotel with a conference center. The project is billed as being a true city center because of its offerings and location, the center of the Peninsula.

HL Development began scouting for an equity partner last summer when a financial adviser was hired and more than 50 packets showcasing City Center were sent to large real estate investors across the United States, according to Bill Hudgins, president of HL Development.

"We had several large equity funds that never look here, come here and really kick the tires, and they liked what they saw," Hudgins said. "We had three groups that really wanted to partner with us. Northwestern Mutual was selected because they buy and hold a property for a period of years -- instead of flipping it and selling it like many large equity funds do."

Hudgins explained that the $75 million figure came from the value of each of the two phases in the development. For the first phase, he said that value was taken from the possible income it would produce.

"Phase I is 99 percent leased, and that has a value," Hudgins said. "Phase II was based on the future market value and our construction costs."

Peter Jahn, director of investments for Northwestern Mutual in Washington, D.C., said the investment in City Center was unlike most investments his company has made in the past.

"The bulk of our investments is in apartments and multifamily, but we liked the private-public partnership aspect of the deal, and the fact that the city was very much behind this project. We also liked the mixed-use aspect. This is the type of real estate that's emerging across the United States.

"It will be a good thing for the city," he said.

"But it's already a good thing. Eleven separate projects with a total construction value of $140 million are now under way in City Center," said Hudgins.

"I think this is the most construction taking place in any one spot in the region, including the Town Center in Virginia Beach. But some of that construction is getting ready to finish up shortly," Hudgins said.

"City Center will get built in a reasonable time frame because of our equity partner," Lindsay said.

"And the interest Northwestern Mutual has taken in Newport News will spur other investors to become interested in the city," Hudgins said. "Investors like Northwestern are typically just interested in larger markets like Atlanta and Washington, D.C."

Northwestern Mutual completed about $5 billion in real estate transactions in 2004, and the company is one of the nation's largest institutional owners of real estate investments with more than $25 billion in assets. *